A CFO’s Guide to Health Plan Fiduciary Leadership
January 17th, 2023
Recent passage and implementation of the Consolidated Appropriations Act (CAA) of 2021 creates new risks and opportunities for employers who self-insure their health benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA).
What Employers Need to Know
The CAA mandates employer access to new and critically important insights into the prices they’re paying for employee health care services – details they have been unable to previously obtain from vendors to whom they pay millions of dollars each year to negotiate on their behalf. Finally, employers can evaluate the cost and quality of services they are purchasing from providers and other vendors and make informed procurement decisions. In fact, the law requires employers to demonstrate that the health care services they buy for their employees are cost-effective, high-quality and meet mental health parity and pharmacy benefit requirements.
This means that employers must take steps to establish oversight procedures and processes to document their efforts to comply with the CAA as fiduciaries, similar to the governance practices employers have already established for their 401(k) and retirement plans.
Implementing an effective health plan oversight and audit framework, with documented procurement processes, can substantially reduce corporate exposure for companies and individual directors, officers and employees. Many employers currently lack adequate controls in their existing service agreements, have historically tolerated unreasonably high fees and costs and often rely upon financially conflicted intermediaries for advice.
The CFO’s Role
It is because of these systemic barriers to compliance that CFO leadership is particularly needed to guide corrective action. Compliance may very likely require companies to adopt new business practices, amend existing health benefit contracts and ensure insurance policies for Directors and Officers cover claims involving employee health plans.
The heightened fiduciary risk of being a health plan manager is occurring at a time of increasing health plan expenses, economic pressures, workforce recruitment and retention challenges and a seemingly insatiable employee demand for immediate, personalized solutions that foster overall well-being. CFOs who embrace a health plan fiduciary framework to mitigate litigation risk may find that compliance opens new opportunities to reduce wasteful health care spending, improve predictability and enable better support for the health and wellbeing of their employees and families.
An Opportunity to Address Workforce Health Challenges
The same health plan data that can help CFOs mitigate fiduciary risk can also unlock opportunities for human resource and benefit leaders to better address workforce health challenges and manage delegated services and vendors. Fiduciary leadership that is aligned across finance, human resources and benefit teams can catalyze a transformation of employee health benefits from a liability to a valuable, strategic asset.
Click here for our guide to establishing a strategic fiduciary framework to enhance the value of employee health benefits.
Advice from a Purchaser Who Took on Health Care’s Status Quo and Won
April 14th, 2022
Read and re-read your contracts, and don’t agree to anything that will keep you from fulfilling your fiduciary responsibilities.
Dig into the data. Read the fine print. Follow the money.
That’s Marilyn Bartlett’s advice to employers and purchasers struggling to contain soaring health care costs and looking to gain greater transparency from plans, third-party administrators (TPAs), pharmacy benefit managers (PBMs) and brokers.
“You need to become aware of the full range of costs, including all the hidden fees and incentive arrangements used by health care providers, middlemen, service providers and vendors. You’re the fiduciary, so you have a responsibility to understand where the money goes.” -Marilyn Bartlett
Bartlett knows what she’s talking about when it comes to driving down health care costs. As a certified public account and the former administrator of Montana’s state employee health plan, Bartlett rescued the 31,000-member state plan from impending insolvency by carefully examining existing contracts and reviewing stakeholder financial data to drive better deals for the state.
Here, the contractual terms she found that were unnecessarily adding millions of dollars annually to the cost of health care, and the approach she recommends employers and purchasers take to carefully examine the contractual commitments they make with their vendors.
Use all available tools
According to Bartlett, new tools—notably hospital price transparency rules and the prescription drug reporting requirements for self-insured employers contained in the Consolidated Appropriations Act (CAA)—can give purchasers much better insight into how their health care dollars are spent. For instance, brokers will be required to disclose direct compensation paid by TPAs, PBMs and others. But it is important to push for disclosures on indirect, non-cash compensation, too. That information, combined with what brokers are required by law to disclose, can help employers determine exactly who the broker is working for.
The CAA also contains a prohibition on gag clauses that have traditionally restricted purchaser access to provider cost and quality information. This should help level the playing field when it comes to provider and plan negotiations.
Throw away the chargemaster
Bartlett took over Montana’s state health plan in 2015 in the wake of a $28 million loss the previous year. Actuaries were projecting the insurer would be insolvent by 2017. A former controller for a Blue Cross/Blue Shield plan and chief financial officer of a TPA, Bartlett drew from her experience to systematically disassemble and rebuild the plan’s provider and vendor arrangements.
Her first step was to review the wildly varying prices the plan paid to hospitals. One hospital, for instance, charged four times the amount of another for a knee replacement, and virtually all relied on discounts off their chargemaster, or internal price list, to set rates. Using this methodology, some facilities were charging as much as five times the Medicare rate for the same service.
As a result, the plan imposed a new, take-it-or-leave-it reference pricing model that tied all reimbursements to Medicare rates: Hospitals would receive, on average, about 230% of Medicare and the amounts could only increase if Medicare raised its baseline payments for the same service.
“We knew their financial condition and where their break-even points were” by reviewing Medicare cost reports, Bartlett said. “So, we were eventually able to get them to agree. We pulled rates down and got immediate savings.” Hospital cost savings reached $4.6 million in 2016, $12.7 million in 2017 and $15.6 million in 2018. Today, the plan routinely generates a surplus and premiums haven’t been increased since 2017.
The National Academy for State Health Policy recently launched its interactive Hospital Cost Tool, which provides data on a range of measures to offer insights on hospital profitability and breakeven points calculated using annual Medicare Cost Reports. This provides purchasers with an important tool to model the actions taken in Montana that significantly lowered costs.
Re-read the contracts
In addition to scrutinizing hospital pricing, Bartlett urges purchasers to dig deep into the health plan’s TPA, PBM and consulting contracts. She was appalled by what she found in Montana. Some of the more egregious contract language included clauses that:
- Gave the TPA authority to unilaterally pay non-covered services if they received pushback from a provider or patient.
- Allowed the TPA to keep prescription drug rebates as “reasonable compensation” for its services.
- Restricted the plan’s ability to perform its fiduciary duty by prohibiting it from seeking recovery of network provider overpayments.
- Prevented the plan from directly contacting any health care provider without involvement of the TPA.
- Imposed numerous constraints on how the purchaser could audit TPA claims data.
- Enabled the TPA to sell the purchaser’s data to outside parties.
- Allowed the TPA to pay affiliated third-party vendors without any purchaser knowledge or oversight.
- Allowed the TPA to pay providers less than the claim amount collected from the purchaser and pocket the difference.
- Routed drug manufacturer rebates through a third-party “rebate aggregator” that collected up to 25% of the rebate before sending the balance on to the health plan.
- Allowed PBMs to contract with pharmacies they own.
Lesson Learned
Read and re-read your contracts, and don’t agree to anything that will keep you from fulfilling your fiduciary responsibilities. Even if not explicitly banned by the CAA, hidden contract terms or contract terms that limit the availability of data place employers at risk for failing to meet their fiduciary responsibilities. This, in turn, can put them in both regulatory and legal jeopardy.
Bartlett said she believes the CAA disclosure requirements will go a long way toward helping purchasers—and the country—get control health care spending.
“All the money in the system; that comes from employers, employees, consumers and the taxpayer. It’s all of us, and it’s just horrible how much waste there is. So, I think these transparency rules can give us the leverage we need to finally start reducing that waste.” -Marilyn Bartlett
Today, Bartlett is helping state health plans pursue the same cost-saving tactics she employed in Montana in her role as a senior policy fellow with the National Academy of State Healthcare Policy.